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AXIS BANK
PRICE: RS.1143 RECOMMENDATION: BUY
TARGET PRICE: RS.1600 FY12E P/E: 12.2X, P/ABV: 2.2X
Board approved the revised deal structure; cutting business
growth assumption on back of rising macro-headwinds. Maintain
BUY on stock, even after factoring in stress on its asset quality &
NIM.
Axis bank board approved a revised Axis-Enam deal structure to acquire
Enam's equity broking and investment banking businesses. The revised
structure complies with conditions set by the RBI, in its in-principle approval
of the transaction. Now, regulatory overhang is likely to go, in our view.
Moderation in balance sheet growth visible during last quarter; We have
further cut the growth assumption in both advances as well as deposits to
20.1% and 19.8%, respectively, during FY12.
NIM compressed by 43 bps QoQ to 3.28% during Q1FY12, however it is in
line with our expectations. We are modeling 44 bps contraction in its
margins (3.21% in FY12 vs. 3.65% in FY11) during FY12, given its
unfavorable ALM (27.8% of advances and 52.8% deposits would come for
re-pricing during FY12).
Asset quality has remained stable during Q1FY12 on back of lower slippage
(Rs.2.96 bn with annualized slippage ratio of 83 bps as against average runrate
of 1.35% during last 5 quarters). Both gross NPA and net NPA stand at
1.06% and 0.31%, respectively, at the end of Q1FY12.
On back of higher provisions, coverage ratio is very healthy at 90.4%
(including prudential write-offs) at the end of Q1FY12. We are assuming
higher slippage (1.35%) during FY12 on back of slowing economy. Its
cumulative restructured book is also lower at Rs.21.5 bn (1.8% of net
advances), better than the industry average and hence reduces the risk of
earnings impact, going forward.
We are modeling lower loan growth as well as higher slippage for FY12. We
are revising our earnings estimate lower for FY12 but maintain BUY rating
on the stock with the revised TP of Rs.1600 (Rs.1750 earlier) based on P/ABV
of 3.0x its FY12E adjusted book value.
Board approved the revised Axis-Enam deal structure; regulatory
overhang is likely to go, in our view.
Axis bank board approved a revised deal structure to acquire Enam's equity broking
and investment banking businesses. The revised structure complies with conditions
set by the RBI, in its in-principle approval of the transaction. Now, regulatory overhang
is likely to go, in our view.
According to the revised new plan, Enam shareholders will get 5.7 shares of Axis
Bank for every share held in the company. Axis Bank will pay Rs.2.74 bn cash to
Enam, which is equivalent to its book value and Enam shareholders will get 13.8 mn
Axis Bank shares (3.3% equity).
In our opinion, this deal is strategically important for Axis Bank as it fills the gap in a
complete suite of products offered to its retail and corporate clients. This piece of
business is likely to complement its present strong foothold in the domestic debt
capital market.
Moderation in balance sheet growth visible during last quarter;
we are modeling further slow-down on back of rising macroheadwinds.
The bank's balance sheet has grown 23.1% YoY to Rs.2331.4 bn at the end of
Q1FY12 on back of faster growth in Investment book (30.9% YoY) as compared to
the loan book (21.4% YoY). In loan book, muted growth was witnessed in corporate
segments while 'Agriculture' (39.0%) and retail (28.2% growth) segments delivered
strong growth.
During the same period, deposits grew 24.5% YoY to Rs.1836.0 bn. CASA deposits
grew faster than the term deposits leading to improvement in CASA mix from
40.2% at the end of Q1FY11 to 40.5% at the end of Q1FY12. However, it declined
from 41.1% at the end of FY11.
We have further cut the growth assumption in both advances as well as deposits to
20.1% and 19.8%, respectively, during FY12.
NIM contracted both YoY & QoQ, in line with our expectation; we
are modeling 3.2% for FY12E
NIM compressed by 43 bps QoQ to 3.28% during Q1FY12, however it is in line with
our expectations. We are modeling NIM at 3.2% for FY12E as compared to 3.65%
witnessed during FY11.
We have seen Axis bank delivering 3.0%+ NIM during last 16 quarters mainly on
the back of lower cost of funds which has been underpinned by superior liability
franchise. We are modeling 44 bps contraction in its margins during FY12, given its
unfavorable ALM (27.8% of advances and 52.8% deposits would come for re-priced
during FY12). However, high CASA share is likely to support healthy NIM for the
bank.
Asset quality at healthy level; we are assuming higher slippage
during FY12 on back of slowing economy. PCR at 90.4% shows
the quality of its balance sheet
Asset quality has remained stable during Q1FY12 on back of lower slippage (Rs.2.96
bn with annualized slippage ratio of 83 bps as against average run-rate of 1.35%
during last 5 quarters). Gross NPA and net NPA stand at 1.06% and 0.31%, respectively,
at the end of Q1FY12.
On back of higher provisions, coverage ratio is very healthy at 90.4% (including prudential
write-offs) at the end of Q1FY12. We are assuming higher slippage (1.35%)
during FY12 on back of slowing economy.
Its cumulative restructured book is also lower at Rs.21.5 bn (1.8% of net advances),
better than the industry average and hence reduces the risk of earnings impact,
going forward.
Valuations & recommendation
At the current market price of Rs.1143, the stock is trading at 12.2x its FY12E earnings
and 2.2x its FY12E ABV.
We are modeling lower loan growth as well as higher slippage for FY12 on back of
rising macro-headwinds.. We are revising our earnings estimate lower for FY12 and
now we expect net profit for FY12E to be Rs.38.5 bn. This would result into an EPS
of Rs.93.8 and adjusted book value of Rs.527.1 for FY12E.
We believe, Axis bank is likely to continue to trade at a premium valuation vis-à-vis
its peers on back of consistency, robust business growth (faster than the system
growth), quality liability franchise, stable asset quality, healthy operating efficiency
and robust return ratios (RoA & RoE).
We maintain BUY rating on the stock with the target price of Rs.1600 (Rs.1750 earlier)
based on P/ABV of 3.0x its FY12E adjusted book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AXIS BANK
PRICE: RS.1143 RECOMMENDATION: BUY
TARGET PRICE: RS.1600 FY12E P/E: 12.2X, P/ABV: 2.2X
Board approved the revised deal structure; cutting business
growth assumption on back of rising macro-headwinds. Maintain
BUY on stock, even after factoring in stress on its asset quality &
NIM.
Axis bank board approved a revised Axis-Enam deal structure to acquire
Enam's equity broking and investment banking businesses. The revised
structure complies with conditions set by the RBI, in its in-principle approval
of the transaction. Now, regulatory overhang is likely to go, in our view.
Moderation in balance sheet growth visible during last quarter; We have
further cut the growth assumption in both advances as well as deposits to
20.1% and 19.8%, respectively, during FY12.
NIM compressed by 43 bps QoQ to 3.28% during Q1FY12, however it is in
line with our expectations. We are modeling 44 bps contraction in its
margins (3.21% in FY12 vs. 3.65% in FY11) during FY12, given its
unfavorable ALM (27.8% of advances and 52.8% deposits would come for
re-pricing during FY12).
Asset quality has remained stable during Q1FY12 on back of lower slippage
(Rs.2.96 bn with annualized slippage ratio of 83 bps as against average runrate
of 1.35% during last 5 quarters). Both gross NPA and net NPA stand at
1.06% and 0.31%, respectively, at the end of Q1FY12.
On back of higher provisions, coverage ratio is very healthy at 90.4%
(including prudential write-offs) at the end of Q1FY12. We are assuming
higher slippage (1.35%) during FY12 on back of slowing economy. Its
cumulative restructured book is also lower at Rs.21.5 bn (1.8% of net
advances), better than the industry average and hence reduces the risk of
earnings impact, going forward.
We are modeling lower loan growth as well as higher slippage for FY12. We
are revising our earnings estimate lower for FY12 but maintain BUY rating
on the stock with the revised TP of Rs.1600 (Rs.1750 earlier) based on P/ABV
of 3.0x its FY12E adjusted book value.
Board approved the revised Axis-Enam deal structure; regulatory
overhang is likely to go, in our view.
Axis bank board approved a revised deal structure to acquire Enam's equity broking
and investment banking businesses. The revised structure complies with conditions
set by the RBI, in its in-principle approval of the transaction. Now, regulatory overhang
is likely to go, in our view.
According to the revised new plan, Enam shareholders will get 5.7 shares of Axis
Bank for every share held in the company. Axis Bank will pay Rs.2.74 bn cash to
Enam, which is equivalent to its book value and Enam shareholders will get 13.8 mn
Axis Bank shares (3.3% equity).
In our opinion, this deal is strategically important for Axis Bank as it fills the gap in a
complete suite of products offered to its retail and corporate clients. This piece of
business is likely to complement its present strong foothold in the domestic debt
capital market.
Moderation in balance sheet growth visible during last quarter;
we are modeling further slow-down on back of rising macroheadwinds.
The bank's balance sheet has grown 23.1% YoY to Rs.2331.4 bn at the end of
Q1FY12 on back of faster growth in Investment book (30.9% YoY) as compared to
the loan book (21.4% YoY). In loan book, muted growth was witnessed in corporate
segments while 'Agriculture' (39.0%) and retail (28.2% growth) segments delivered
strong growth.
During the same period, deposits grew 24.5% YoY to Rs.1836.0 bn. CASA deposits
grew faster than the term deposits leading to improvement in CASA mix from
40.2% at the end of Q1FY11 to 40.5% at the end of Q1FY12. However, it declined
from 41.1% at the end of FY11.
We have further cut the growth assumption in both advances as well as deposits to
20.1% and 19.8%, respectively, during FY12.
NIM contracted both YoY & QoQ, in line with our expectation; we
are modeling 3.2% for FY12E
NIM compressed by 43 bps QoQ to 3.28% during Q1FY12, however it is in line with
our expectations. We are modeling NIM at 3.2% for FY12E as compared to 3.65%
witnessed during FY11.
We have seen Axis bank delivering 3.0%+ NIM during last 16 quarters mainly on
the back of lower cost of funds which has been underpinned by superior liability
franchise. We are modeling 44 bps contraction in its margins during FY12, given its
unfavorable ALM (27.8% of advances and 52.8% deposits would come for re-priced
during FY12). However, high CASA share is likely to support healthy NIM for the
bank.
Asset quality at healthy level; we are assuming higher slippage
during FY12 on back of slowing economy. PCR at 90.4% shows
the quality of its balance sheet
Asset quality has remained stable during Q1FY12 on back of lower slippage (Rs.2.96
bn with annualized slippage ratio of 83 bps as against average run-rate of 1.35%
during last 5 quarters). Gross NPA and net NPA stand at 1.06% and 0.31%, respectively,
at the end of Q1FY12.
On back of higher provisions, coverage ratio is very healthy at 90.4% (including prudential
write-offs) at the end of Q1FY12. We are assuming higher slippage (1.35%)
during FY12 on back of slowing economy.
Its cumulative restructured book is also lower at Rs.21.5 bn (1.8% of net advances),
better than the industry average and hence reduces the risk of earnings impact,
going forward.
Valuations & recommendation
At the current market price of Rs.1143, the stock is trading at 12.2x its FY12E earnings
and 2.2x its FY12E ABV.
We are modeling lower loan growth as well as higher slippage for FY12 on back of
rising macro-headwinds.. We are revising our earnings estimate lower for FY12 and
now we expect net profit for FY12E to be Rs.38.5 bn. This would result into an EPS
of Rs.93.8 and adjusted book value of Rs.527.1 for FY12E.
We believe, Axis bank is likely to continue to trade at a premium valuation vis-à-vis
its peers on back of consistency, robust business growth (faster than the system
growth), quality liability franchise, stable asset quality, healthy operating efficiency
and robust return ratios (RoA & RoE).
We maintain BUY rating on the stock with the target price of Rs.1600 (Rs.1750 earlier)
based on P/ABV of 3.0x its FY12E adjusted book value.
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